Across-the-Board Dollar Strength

October 11, 2016

A well-bid dollar this Tuesday reflects mounting confidence the Fed will soon raise interest rates, a belief that the U.S. economy is sufficiently resilient to handle monetary tightening, and presidential opinion polls indicating a wider lead for Clinton. Dollar strength has been accompanied by share price gains in Europe, softer emerging market stock markets, higher U.S. Treasury yields, and lower commodity prices.

The dollar touched overnight highs of 1.2249 per pound, 1.1073 per euro, JPY 104.08, CAD 1.3240, CHF 0.9885, 0.7535 per AUD, and 0.7058 per NZD. In percentage terms from Monday closing levels, the dollar advanced 0.9% against sterling, 0.8% relative to the Aussie and New Zealand dollars, 0.6% vis-a-vis the euro, 0.5% versus the Swiss franc, and 0.2% against the yen. The Chinese yuan weakened by another 0.2% to a six-year low against the dollar.

The rand slumped over 3.0%, leading emerging markets lower. South Africa’s finance minister is accused of malfeasance.

Stocks in the Pacific Rim fell 1.2% in South Korea, 1.1% in Hong Kong, and 0.5% in Singapore and Taiwan but appreciated by 0.6% in China and 0.4% in both Indonesia and Japan. Equities in Europe have risen 0.9% in Greece, 0.5% in Germany, 0.4% in France and Britain, and 0.3% in Spain.

The 10-year Treasury yield in after hours trading rose four basis points to 1.76%. But comparable British gilt and German bund yields are down five basis points and 2 bps.

West Texas Intermediate oilhit an intra-day 15-month high Monday of $51.72 per barrel but at $50.96 is currently 0.8% below yesterday’s close. Gold slid 0.3% to $1,256.3 per ounce. Zinc fell sharply.

Markets are priced for a likely December hike of the federal funds rate. Vice Chair Fisher said September’s decision had been a close call, and Chicago Fed President Evans, a dove, said a rate increase is likely soon.

An NBC-WSJ political poll taken just before Sunday’s debate puts Clinton’s lead at 46-35%. She’s back ahead in most battleground states. Trump in response is doubling up on his defiant stance even as Republican lawmakers facing tight contests of their own are withdrawing their endorsements of his candidacy.

Released data today show

A four-month low in U.S. small business sentiment in September of 94.1 after 94.4 in the index compiled by NFIB.

A 1.1% on-year increase in the Conference Board’s U.S. employment trends index.

A larger-than-expected Japanese current account surplus. On a seasonally adjusted basis, such widened to JPY 1.976 trillion in August from 1.448 trillion yen in July as exports climbed 4.0% while imports fell 1.6%. In nonadjusted terms, there was a surplus of JPY 2.001 trillion versus JPY 1.625 trillion in August 2015. Imports (down 18.3%) fell almost twice as much from a year earlier as did exports. The surpluses are larger than 3% of GDP.

A JPY 2.748 trillion net Japanese capital outflow during September, the last month before the fiscal year mid-point.

Japan’s economy watchers index slipped unexpectedly by 0.8 points in September to a 3-month low of 44.8.

Japanese bankruptcies recorded an on-year decline of 3.4% in September after a 14.87% upward 12-month spike in August.

Improved investor sentiment toward Germany and Euroland reported by the ZEW Institute. Regarding Germany, investor expectations rose to a reading of 6.2 in October from 0.5 in September, and the current situation printed at 59.5 after 55.1. Regarding the euro area, while expectations jumped to 12.3 from 5.4, current conditions weakened 2.3 points to a reading of minus 12.8.

British same-store retail sales were unexpectedly higher in September than a year earlier, although the increase was only 0.4%.

The National Australian Bank reported 2-month high in business conditions to a reading of +8 in September following +7 in August, while business confidence held steady at +6. Australian home loans fell twice as fast as expected on month in August, losing 3.0%.

Consumer prices in the year to September rose 0.9% in Sweden and 0.6% in Hungary but fell 0.6% in Romania.

Factory output in South Africa, which had been forecast to rise, instead fell 1.0% in August after declining 1.5% in July.

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